Tuesday, July 14, 2015

Housing Tax Policy, A Series: Part 42 - A quick note on new housing units

I was doing my housing schtick at marginalrevolution and a commenter mentioned that building in Austin, TX was going strong. I pulled together some numbers, for comparison, and figured I'd post them here for future reference. If only the Case-Shiller 10 cities could be like Austin:

And, there is no lack of demand for housing in these metro areas. Does that rate of new units even make up for loss of old units? Except for Chicago and Austin, rental vacancy rates in all these cities are 4.6% or below and rent inflation is running high.

I frequently hear people say that there was an unsustainable boom in housing because the baby boomers reached a life cycle peak in home ownership and household size was falling but will now stabilize.

What I find fascinating about the housing situation is that there are dozens of just-so stories to explain the conventional story, which all would make theoretical sense, and which come with countless anecdotes and facts that we all agree are true. The problem is that they don't match the data.

The problem is, since there are so many palpable anecdotes and since the conventional idea about what happened is held up by so many pillars of evidence, even someone who is 80% confident that there was an unusual level of building in the 1990s and 2000s looks at this graph and says, ok, maybe I'm only 40% confident, they will follow up with, "But, there are 12 other things that I'm 80% confident about."

I've become that person, except in defense of a contrarian reading. I've looked at so much data in this series that doesn't back up the conventional story that if I see some detail that doesn't quite fit my story, I think, "Well, I need to adjust my narrative a little bit, but there are 12 other things that I'm 80% confident about." I know how they feel.

Here is a national measure of housing unit permits / population, both in terms of population level and population growth. We need to build. Yet the only period over the past 25 years that even reached historically typical building levels is widely derided as a bubble. Public policy is explicit and nearly unanimously supported. The one thing we can't do is have that happen again. And, meanwhile there is marching in the streets against the 1% ownership class - marches in cities like New York, San Francisco, and Washington - marches against financiers and developers and bubbles.

Note: The table above is based on the number of 1Q permits.
This graph is based on Seasonally Adjusted Annual Rate.
So, on the left scale, Austin corresponds to a rate of about 11 per thousand.
The other cities correspond to about 3 1/2 or less.

Here's the story, which is, line for line, a lesson plan on how to create a dysfunctional urban housing market. The MissionLocal website appears to be full of one story after another of activists in San Francisco harassing developers with gems of economic logic like this: “There’s just too much market-rate development, and its cumulative effect is making the neighborhood unaffordable.”